Supreme Court sides with eBay in patent case

eBay dodges a permanent injunction in the fight over its popular "Buy It Now" …

In a decision released this morning, the US Supreme Court has overturned a lower court ruling that an injunction should be issued against eBay due to its infringement on a couple of patents owned by MercExchange. In a unanimous decision, the court decided that a permanent injunction against the use of infringing technology need not be automatically issued once it is determined that a patent has been infringed.

At issue are two patents filed for in 1995 by MercExchange, which began life as an online auction site similar to eBay. One of its patents covers the concept of an online auction; the other is for what they called a direct-buy patent, which works almost identically to eBay's familiar Buy It Now feature.

A few months after MercExchange filed its two patent applications, eBay began operations and grew to dominate the online auction scene. In the meantime, the US Patent and Trademark Office gave a thumbs up to the MercExchange patents, and eBay subsequently entered into negotiations with the company to license the patents. In 2001, negotiations broke down and MercExchange subsequently sued the online auction giant for patent infringement.

Since then, eBay has found itself on the losing end of most of the court activity related to the case. Initially, MercExchange's was awarded US$25 million by a District Court for eBay's infringement of the "direct buy" patent, but had its patent for the online auction process overturned. eBay appealed the ruling and the case went to US Court of Appeals. That court upheld the lower court's finding and issued an injunction against eBay's use of the Buy It Now feature, which it then stayed pending the inevitable appeal to the Supreme Court.

eBay is by no means off the hook with the Supreme Court's ruling. Although the immediate threat of an injunction shutting down all the Buy It Now auctions has passed, eBay is still liable for infringing the direct-buy patent. What is noteworthy and possibly precedent-setting is the ruling that an injunction need not automatically follow a finding of infringement. That's cold consolation to the likes of Research In Motion, which wrote a US$612.5 million check to patent holding firm NTP in the infamous BlackBerry infringement case—RIM's willingness to settle was due in no small part to the Sword of Damocles of a permanent injunction hanging over its head.

The Supreme Court ruling is good news for those defending themselves against charges of patent infringement, as it removes the threat of an automatic shutdown in the event of an adverse finding. On the flip side, it has the potential to make patent licensing negotiations an even more drawn-out and expensive process, as alleged infringers may be more likely to take their chances in court. If nothing else, it is another indication that the patent system in the US is in dire need of an overhaul.